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Better get paid by dividends or salary?

LondinaLondina Experienced MentorMAAT, AAT Licensed Accountant Posts: 814
What's better, get paid by dividends or salary for a director? By salary, no matter if a company is in loss, he can still get paid let's say £500pm...

instead by dividends, all depends by the profit of the year, example if profit 1st year is £280, can the director pay himself £1000?
I don't think so...however there are so many directors that prefer to get paid by dividends and I don't quite see the benefit, if the company is in loss!

Thanks

Comments

  • KernowAccountantKernowAccountant Settling In Nicely Registered Posts: 120
    Directors don't receive dividends.
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814

    Directors don't receive dividends.

    if they are the owner and shareholder, yes they do (very common in small companies)
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    If the company is making a loss there wouldn't be any dividends to be paid?
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    Unless of course there are enough reserves from previous profitable years.
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814

    Unless of course there are enough reserves from previous profitable years.

    exactly...or enough money from director's loan, so the director can pay himself back?

    otherwise in this situation, a salary is a better solution
  • KernowAccountantKernowAccountant Settling In Nicely Registered Posts: 120
    Londina said:

    Directors don't receive dividends.

    if they are the owner and shareholder, yes they do (very common in small companies)
    Precisely my point. Shareholders receive dividends; directors do not.
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    If this is the director's only income a small salary above the LEL is always a good idea for NIC purposes.
    BeccaLouJ9
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814

    Londina said:

    Directors don't receive dividends.

    if they are the owner and shareholder, yes they do (very common in small companies)
    Precisely my point. Shareholders receive dividends; directors do not.
    yeah I know...but in the real world of SME, 90% of the directors are the shareholders (hence the director's loan account?)

    If this is the director's only income a small salary above the LEL is always a good idea for NIC purposes.

    Exactly

  • NeillawNeillaw New Member RossendaleMAAT, AAT Licensed Accountant Posts: 266
    Paying a dividend means a reduction in Employers Nic payable as profits will be charged at corporation tax rate.
    However if you used the empoyers allowance provision of £2k then a higher salary could be used as long as the shareholder/director pays the personal tax element.
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    Agree but watch out for the withdrawal of the Employer's allowance for sole director's companies from next tax year.
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    edited February 2016
    mrme89 said:


    The dividend must be declared from any retained earnings.


    Dividends from retained earnings is accountancy 101. If you are struggling with this, I really think you are doing your client a disservice by accepting the appointment.

    Don't be drastic, I haven't accept any appointment, that's why I'm seeking clarification in case I have to deal with a situation like this in future.

    Of course I know that dividends comes from profit/enough reserves, that's why I'm wondering if a salary would be better
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    mrme89 said:



    By the way, it's good etiquette to let people know if the question is theoretical.

    This is not the MIP forum, but members discussion so questions are usually theoretical . Members can be employees in accounts, not all of them are running their own business



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